SKYBRIDGE REAL ESTATES LLP,KOLKATA vs. D.C.I.T., CIRCLE - 34, KOLKATA, KOLKATA
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Income Tax Appellate Tribunal, “C” BENCH, KOLKATA
Per Rajesh Kumar, AM:
This is an appeal preferred by the assessee against the order of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 19.07.2024 for the AY 2018-19.
The issue raised in first ground of appeal is against the order of National Faceless Appeal Centre, Delhi [the learned CIT (A)], confirming the order of National e-Assessment Centre (the ld. AO ) wherein the conversion of stock-in-trade, of equity shares into ‘stock- in-investment’, in the balance sheet as of 01.04.2017, as invalid, on the ground of being non-genuine, thereby confirming the treatment by the AO of ₹4,12,62,662/- on account of short term capital gain
The facts in brief are that the assessee is a limited liability partnership firm and engaged in the business of investment and trading in shares, securities and derivatives as well as the business of general commission agents. During the year the assessee filed its return of income on 30.10.2018, declaring total income of ₹2,50,19,480/-, which was selected for scrutiny and statutory notices were duly issued and served upon the assessee. The ld. AO during the course of assessment proceedings observed that the assessee has shown purchase of stock-in-trade of ₹52,35,40,464/- for A.Y. 2017-18 and has sold these shares in A.Y. 2018-19 and thus offering said income as business income from operation of sale of shares. The assessee has also shown the income of ₹5,70,98,591/- from sale of investments in its profit and loss account. The ld. AO further noted that in the computation of income, the assessee has shown Rs. 1,47,26,999/- as long term capital gain which has been claimed as exempt u/s 10(38) of the Act, the remaining capital gain of Rs. 4,12,62,661/- was under the head short term capital gain on which tax at the rate of 20% was paid. The ld. AO noted that these equities were held as stock-in-trade after being purchased in F.Y. 2016-17 and not as capital asset. Accordingly, the ld. AO issued show cause notice to the assessee which was replied vide letter dated 05.04.2021. The ld. AO after taking into account the submission of the assessee, the ld. AO held that the income from sale of these shares which were held as stock- in-trade in the earlier financial year should have been offered as income from business, however, the assessee has either paid tax at the rate of 20% or not paid tax at all. In para 7.5, the ld. AO has extracted the balance sheet, P & L account and computation of total
In the appellate proceedings, the ld. CIT (A) simply affirmed the order of ld. AO.
After hearing the rival contentions and perusing the materials available on record, we note that the assessee is in the business of investment and trading in shares, securities and derivatives besides doing the business of general commission agent. The assessee has been showing security/shares purchase as stock-in-trade. The assessee converted the sock-in-trade as on 1.04.2017 and treated the same as investment in shares. The shares were sold in the F.Y. 2017- 18, relevant to A.Y. 2018-19. The assessee purchased shares in A.Y. 2017-18 and shown in stock-in-trade. According to the assessee there is no bar or statutory embargo on converting the stock-in-trade into investment/ capital assets and amendment in that section was brought by Finance Act, 2018 by inserting Section 28(via), which provides that where stock-in-trade is converted into a capital asset it is treated as capital assets, the profit and gain from the conversion shall be taxable as business income.
On the other hand, the ld. AR argued before us that in absence of any bar by the Income Tax Act, the assessee can do tax planning within four corner of law and since the amendment was brought about by Finance Act, 2018 with effect from 1-4-2019 and the same is not applicable to the current assessment year and is applicable from A.Y.
“15. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the ld. CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the assessee in the instant case has converted its stock-in-trade of shares and securities of certain companies to investment as on 01.04.2004 at the same value as on 31.03.2004. We find the Assessing Officer while holding that the law does not prohibit the assessee from converting its stock-in-trade to investment, has however, rejected the explanation given by the assessee on the ground that the assessee is still dealing in shares and securities which is evidenced by the frequency of transactions. He, therefore, made addition of Rs.85,59,900/- to the income of the assessee being business profit on conversion of stock-in-trade to investment which has been upheld by the ld. CIT(A). It is the submission of the ld. counsel for the assessee that such conversion is bona-fide since the assessee has held such shares and securities in the investment account and no share has been held under the head stock-intrade. It is also his argument that it is the right of the assessee to convert the shares from stock- in-trade to investment as long as the conduct of the assessee is bona-fide and he is following the method consistently. We find some force in the arguments advanced by the ld. counsel for the assessee. As mentioned earlier, the assessee in its note to accounts has given reason for conversion of stock-in-trade to investment which has already been reproduced in the preceding paragraph. We find the Assessing Officer accepts that such conversion is legal but doubting about the bonafideness of the assessee treating such conversion as colourable device to avoid payment of tax. We find the Hon’ble Delhi High Court in the case of Express Securities P. Ltd. (supra) while deciding an identical issue has decided the issue in favour of the assessee by observing as under :- “2. The assessee is a company. In the return for the year in question, it had declared long-term capital gain of Rs.3,34,65,931/- and the said gain was claimed as exempt under Section 10(38) of the Income Tax Act, 1961 (Act, for short). The respondent-assessee had claimed before the Assessing Officer that they were maintaining two sets of portfolio, i.e., investment and trading portfolio and the shares, which were sold and subject matter of long-term capital gains, were held in the investment portfolio. This factual position was not disputed. 3. The Assessing Officer has recorded that as per the business activities undertaken by the assessee, they were dealing and trading in shares and financial securities in Bombay Stock Exchange, Delhi Stock Exchange and Calcutta Stock Exchange. The respondent-assessee was a registered broker with the said exchanges. The Assessing Officer held that the business of the assessee was not to invest in shares but to deal with the shares as a stock broker and trader. He observed that conversion of stock in trade into
Scrip name Quantity Book value as on 31.03.2004 Global Tele 3,35,000 2,09,14,050 Himachal 6,15,000 75,27,600 Futuristic NIIT 20,000 33,97,200 6. The Commissioner (Appeals) has observed that in the balance sheet as on 31st March, 2005 the shares were shown under the head "inventories" and in the subsequent balance sheet as on 31st March, 2006 shares were again shown under the head "investment at book/fair value on 1st April, 2004". Thus, the assessee converted the aforesaid stock in trade of Rs.3,18,38,850/- to the head "investment at book/fair value on 1st April, 2004" and the said disclosure was made in the balance sheets as on 31st March, 2005 and 31st March, 2006. In the first year, the Assessing Officer did not disturb the aforesaid conversion and accepted the same. The Commissioner (Appeals) noticed that for the Assessment Year 2005-06 assessment was concluded under Section 143(3) vide order dated 27th November, 2007 but the Assessing Officer did not object to the said conversion. These shares were subsequently sold as detailed in paragraph 2.9 of the order of the Commissioner (Appeals) in August, 2005, September, 2005 and substantial portion was sold in March, 2006 and long-
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 02.12.2024.
Sd/- Sd/- (PRADIP KUMAR CHOUBEY) (RAJESH KUMAR) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Kolkata, Dated: 02.12.2024 Sudip Sarkar, Sr.PS
Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. CIT DR, ITAT, 4. 5. Guard file. BY ORDER, True Copy// Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Kolkata
